Budgeting and Budgetary Institutions

588 Pages·2007·2.33 MB·English

by  Anwar Shah

PUBLIC SECTOR
GOVERNANCE AND
ACCOUNTABILITY SERIES
BUDGETING AND
BUDGETARY
INSTITUTIONS
Edited by ANWAR SHAH

BUDGETING AND
BUDGETARY
INSTITUTIONS
Introduction to the Public Sector Governance and Accountability Series
Anwar Shah,Series Editor
A well-functioning public sector that delivers quality public services consistent with citizen pref-
erences and that fosters private market-led growth while managing fiscal resources prudently is
considered critical to the World Bank’s mission ofpoverty alleviation and the achievement of
the Millennium Development Goals.This important new series aims to advance those objec-
tives by disseminating conceptual guidance and lessons from practices and by facilitating
learning from each others’experiences on ideas and practices that promote responsive(by
matching public services with citizens’preferences),responsible(through efficiency and equity
in service provision without undue fiscal and social risk),and accountable(to citizens for all
actions) public governance in developing countries.
This series represents a response to several independent evaluations in recent years that
have argued that development practitioners and policy makers dealing with public sector
reforms in developing countries and,indeed,anyone with a concern for effective public gov-
ernance could benefit from a synthesis ofnewer perspectives on public sector reforms.This
series distills current wisdom and presents tools of analysis for improving the efficiency,
equity,and efficacy ofthe public sector.Leading public policy experts and practitioners have
contributed to this series.
The first 14 volumes in this series, listed below, are concerned with public sector
accountability for prudent fiscal management;efficiency,equity,and integrity in public service
provision; safeguards for the protection of the poor, women, minorities, and other dis-
advantaged groups;ways ofstrengthening institutional arrangements for voice,choice,and
exit;means ofensuring public financial accountability for integrity and results;methods of
evaluating public sector programs,fiscal federalism,and local finances;international practices
in local governance;and a framework for responsive and accountable governance.
Fiscal Management Budgeting and Budgetary Institutions
Public Services Delivery Local Budgeting
Public Expenditure Analysis Local Public Financial Management
Local Governance in Industrial Countries Performance Accountability and
Combating Corruption
Local Governance in Developing
Countries Tools for Public Sector Evaluations
Intergovernmental Fiscal Transfers: Macrofederalism and Local Finances
Principles and Practice Citizen-Centered Governance
Participatory Budgeting
PUBLIC SECTOR
GOVERNANCE AND
ACCOUNTABILITY SERIES
BUDGETING AND
BUDGETARY
INSTITUTIONS
Edited by ANWAR SHAH
THE WORLD BANK
Washington,D.C.
©2007 The International Bank for Reconstruction and Development / The World Bank
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ISBN-10:0-8213-6939-3
ISBN-13:978-0-8213-6939-5
eISBN-10:0-8213-6940-7
eISBN-13:978-0-8213-6940-1
DOI:10.1596/978-0-8213-6939-5
Library ofCongress Cataloging-in-Publication Data
Budgeting and budgetary institutions / edited by Anwar Shah.
p.cm.
Includes bibliographical references and index.
ISBN-13:978-0-8213-6939-5
ISBN-10:0-8213-6939-3
ISBN-10:0-8213-6940-7 (electronic)
1. Budget—Developing countries. 2. Finance, Public—Developing countries.
I.Shah,Anwar.
HJ2216.B86 2007
336.09172’4—dc22
2006102152
Contents
Foreword xv
Preface xvii
Acknowledgments xix
Contributors xxi
Abbreviations and Acronyms xxv
Overview 1
Anwar Shah
Part I A Primer on Budgeting and
Budgetary Institutions
CHAPTER
1 Budgeting Institutions for Better Fiscal
Performance 27
Jürgen von Hagen
Budgeting Institutions 28
Budgeting Institutions and the Principal-Agent
Problem 35
Budgeting Institutions and the Common Pool
Problem 38
v
vi Contents
Conclusions 48
Notes 49
References 49
2
The Budget and Its Coverage 53
Salvatore Schiavo-Campo
Good Governance and Public Expenditure Management 54
The Meaning ofFiduciary Risk in Public Finance 55
The Unity ofthe Budget 55
Coverage,Periodicity,and Definitions 56
Principles ofExpenditure Policy Choices and of
Budget Coverage 60
Extrabudgetary Funds 61
Beyond Direct Expenditure 72
Basic Budget Legislation 81
Notes 86
References 87
3
Capital Budgets: Theory and Practice 89
A.Premchand
Evolution 90
Current Practices 101
Notes 108
References and Other Sources 108
4
Budget Methods and Practices 109
Alta Fölscher
The Nature ofthe Problem 109
Beyond Incrementalism:Rationality and Incentives in
Budget Methods 118
Conclusion 134
Note 134
References 134
Contents vii
5
A Primer on Performance Budgeting 137
Anwar Shah and Chunli Shen
Public Budgeting:Motivations for Reform 138
Performance Budgeting:Basic Concepts 143
Considerations in Performance Budgeting Reforms 145
Why Pursue Performance Budgeting? 151
How to Do Performance Budgeting:
International Experiences 153
Critical Conditions for Successful Implementation of
Performance Budgeting 171
Concluding Remarks 175
References 176
6 Accrual Accounting in the Public Sector: Lessons for
Developing Countries 179
Paul Boothe
Differences between Cash and Accrual Accounting in the
Public Sector 181
Accrual Accounting in OECD Countries 182
Accounting Regimes and Incentives for Policy Makers 188
Accrual Accounting in Developing Countries 195
Lessons for Policy Makers 197
Notes 199
References 200
7 Activity-Based Cost Management in the
Public Sector 203
Gary Cokins
Activity-Based Cost Management Supports Fact-Based
Decision Making 203
Political Pressures to Hold Down Costs 204
An Excessive Focus on Functions 206
A Fixation on Inputs 206
Removing the Blindfold:Outputs,Not Just Resources
and Expenditures 208
viii Contents
A Simple Way to Understand ABC/M 210
From the Spending View to the Activity and
Output View 211
ABC/M Is a Cost Assignment Network 212
How Do Cost Drivers Work? 214
Multiple-Stage ABC/M Approach 216
One City’s Benefits from ABC/M 218
Operational ABC/M for Productivity 220
But Our Department Does Not Have Outputs 221
ABC/M Uses (and Some Pitfalls) 223
Multiple Views ofCosts Are Empowering 225
Realizing True Cost Savings or Future Cost Avoidance 226
Why Change Now? 227
Annex 7A:Case Study 228
Note 233
8
Budget Preparation and Approval 235
Salvatore Schiavo-Campo
Three Prerequisites for Budget Preparation 236
Bad Practices in Budget Preparation 244
The Budget Preparation Process 252
Division ofRoles and Responsibilities:Finance
and Planning 268
Budget Approval and the Role ofthe Legislature 270
Notes 276
References 277
9
Budget Execution 279
Daniel Tommasi
The Budget Execution Cycle 280
Controlling Compliance in Budget Execution 284
Managing and Monitoring Budget Execution 288
Cash Management 308
Strengthening African Budget Execution Systems 319
Notes 320
References and Other Resources 321